[danielmarkbruce]

Getting a banking license in the US at least is totally doable and lots of banks are created de novo every year.

As another commenter noted, anyone can create "money out of thin air". Come to my corner store and buy an apple on credit. Poof!

Credit was the original money, made out of thin air, and can be by anyone.

[jdminhbg]

There used to actually be lots of new banks, now there are some: https://www.statista.com/statistics/193052/change-in-number-...

[owenversteeg]

Huh, from about 150/yr from 2000-2008, not one from 2011-2016, 10/yr 2017-2023. Interesting.

[Red_Comet_88]

Can your corner store credit be used to pay taxes? How long will your corner store survive if the IRS found out you were processing transactions in your own currency?

[danielmarkbruce]

No to paying taxes, mostly because the asset you'd have is an apple... The corner store at least has a receivable, but the IRS still won't accept that from them.

But, at least in the US, before the national bank acts in the 1800's, various taxing entities specified which bank notes (or other assets) they'd accept and not accept. It was basically whichever bank notes circulated the most with no/little discount, some gold/silver coins, some government bonds. Ie acceptance by a taxing entity isn't really a clear line on "is/is not" money.

Trading receivables has been going on forever, happens today, is totally legal. The corner store could sell the receivable, and many businesses to sell their receivables.

[snitty]

>How long will your corner store survive if the IRS found out you were processing transactions in your own currency?

Offering someone credit in USD isn't making your own currency. The closest widespread version of that are community currencies[0], which the US doesn't seem to particularly care about -- I'm guessing because they're generally pegged to the dollar and promote local economies.

[0] https://en.wikipedia.org/wiki/List_of_community_currencies_i...

[kasey_junk]

You didn’t say currency, you said credit. But it doesn’t matter, lots of non-US chartered institutions historically create US dollars. There are some treaties around it now but in the beginning English banks created the Eurodollar system with no control by the US government.

[kcatskcolbdi]

Everyone has their own opinion of "lots" I suppose, but the quickest info I could come by in a quick search was 8 de novo created in 2021.

[danielmarkbruce]

Yup it's in the ~10's every year more or less.

[ianwalter]

Sure, but because of fintech not as many need to get created. Fintech has made it relatively easy for new entrants to work with partner banks through BaaS platforms.

[jgilias]

Buying an iPhone on credit is not making money out of thin air. Unless you can fractional-reserve create iPhones.

[danielmarkbruce]

Sure it is. In fact, it's fractional banking where the fraction is 0.

Consider how much business can be done on credit, and what constrains it. Infinite, and nothing. My corner store is not required to hold reserves against it's receivable. Apple (or a telco) is not required to hold reserves against it's receivable for a phone on credit. Their suppliers aren't required to hold reserves against credit on them. And so on all the way back to the folks digging stuff out of the ground.

[jgilias]

Ok, what am I misunderstanding here?

If I need financing of 100 pesos for buying a house, and I go to a commercial bank which has a 10% fractional reserve requirement, they'll give me 100 pesos, 90 of which will be newly created broad money. As I buy the house, and pay the 100 pesos to the seller, the 90 newly created pesos just entered the economy.

If I go to your corner store and buy an Iphone on credit, you're not getting any new pesos right away, and neither am I. I could turn around, and sell the Iphone to someone, but again, that person will pay me with pesos that already exist in the system.

You could argue that implicitly me wanting to buy an Iphone means that someone somewhere down the line would've used a commercial bank to take a loan and hence my activity indirectly participates in broad money creation. But that doesn't mean that buying an iPhone in a corner store on credit is exactly equivalent to taking out a loan at a commercial bank when it comes to broad money creation.

[danielmarkbruce]

Continue down the chain on your house example. Imagine in each case instead of transferring money in bank accounts, people do the work on credit. Add up all the credit at the end of the chain. Then go back and add up all the bank account balances in the "pay with money transfer". It'll be the same (except for the fraction). Now, go look at a bunch of public company balance sheets - you'll see payables and receivables all the way down from mining companies to retailers. One long chain of credit. They could have all borrowed money from banks instead and have zero trade receivables throughout the entire chain.

The point of "money creation" is to enable economic activity. Credit does the same thing. In fact, your "money" at the bank is just a receivable from the bank. Ray Dalio has a quarter decent explanation of it here: https://youtu.be/PHe0bXAIuk0

[jgilias]

I see. You use "money" in a kind of a metaphysical 'total value' sense. That's fine, but very confusing when talking about "money creation", because that term typically means the particular mechanism by which units of a particular currency come into existence. In particular, M2 money growth, and where that line comes from.

You're right when you say that it's all debt all the way down, but you're very much wrong if you really believe that new fiat units appear in the system just because you took a loan at a non-bank entity.

EDIT: To illustrate my point a bit.

Let's assume that there are no fractional reserve banks, and only cash exists as a form of money. Only government issues cash, in total 10k USD have been issued, and the next issuance will be in 2 years.

Let's say you need 10 USD, and I have a 10 USD banknote. The banknote is debt money in the sense that it's a direct liability on the central bank balance sheet. For me it's a 10 USD worth asset.

Now we sign an agreement that you're going to pay back 11 USD in a year. I give you my banknote. Now I have exchanged one asset (a 10 USD bank note) for another asset (your promise to pay back 11 USD in a year). Depending on your character, history, and point in time between now and in a year my new asset is worth between 0 - 11 USD.

Let's assume you have stellar character, and are a well respected member of the community who always pays their bills. It's likely my new asset is now worth 10.5 USD, and someone would be willing to buy your debt from me.

By issuing a loan to you, we haven't created additional 50 cents in the system. The system only has 10k in it, and the next issuance is in 2 years. Anyone who would be willing to buy your debt from me would need to already have 10.5 USD.

Now the government decides that fractional reserve banking is pretty nifty, and is made legal. The fractional reserve requirement is set at 10%.

A neobank that has 3 USD cash (central bank liability) in their vaults approaches me and buys your debt from me by opening a 10.5 USD deposit in my name. Now the bank has a liability of 10.5 USD (my deposit), a 3 USD asset (cash), and an asset worth approximately 10.5 USD (your debt).

Congratulations, we have now all together created 7.5 USD of additional money in the system. The theoretical M2 money maximum in our system is now 100k USD. How much is actually in circulation depends on how much debt people are taking on. At the moment we're the only ones having done this, so amount of M2 money in the system is 10 007.5 USD.

[danielmarkbruce]

M1 (and thus M2) money includes checking accounts - a checking account is literally credit. You have lent the bank money and you have a receivable.

I never said "fiat" - you seem to be conflating things. In my example you call out "no new fiat" (which is true) and in your example you say "more M2!"(which is true). Make a valid comparison. The best way is by comparing the total assets and liabilities in the system and the total amount of economic activity driven by those.

In the end, a receivable is a receivable. The only difference is that we've created a very neat system to trade bank receivables, and tend to call them "money". When you hear someone say "money was created" mentally translate it to "receivables were created". "M1", "M2", "fractional" etc make it all sound so sophisticated when it's just ideas from 100,000 years ago, and you and I can create receivables too.